International private equity house I Squared Capital Advisors has walked away from a potential £1.3 billion-plus takeover of Aberdeen-based transport giant FirstGroup.
Announcing its decision not to proceed with an offer, I Squared said it was acting in accordance with listed company takeover rules and a deadline of 5pm on Thursday to put up or shut up” – to either announce a firm intention to make an offer for FirstGroup or walk away.
But I Squared also reported it could return to the negotiating table should circumstances change.
Increased offer
This would be, for example, in the event of an agreement or recommendation of the board of directors of FirstGroup, an announcement of a firm intention to make an offer for FirstGroup by or on behalf of a third party, or where there is some other “material change of circumstances”.
FTSE 250-listed FirstGroup revealed I Squared had raised its offer to £1.35 per share, from £1.18 previously, plus a further sum dependent on the outcome of an “earnout” linked to the sale of its First Transit subsidiary in North America, as well as net proceeds realised from “legacy assets and liabilities” of its former Greyhound business.
The company added: “The board, having carefully evaluated the proposal together with its advisers, concluded that the cash component significantly undervalues FirstGroup’s continuing operations and its future prospects, and the contingent value does not provide shareholders with sufficient certainty.
“FirstGroup is a cash generative, well capitalised business with a significantly de-risked balance sheet and strong positions in the UK bus and rail markets and, with new chief executive officer Graham Sutherland in place, has a resilient and robust platform from which to develop and maximise both organic and inorganic opportunities that exist for growth in the core business.
“Additionally, there is further value to be realised from FirstGroup’s non-core businesses which include the value of the legacy Greyhound assets and residual liabilities, as well as the value of the First Transit earnout.”
Shares down more than 11%
FirstGroup highlighted continued uncertainty for its UK bus and rail operations “in light of the pandemic and the broader macroeconomic backdrop” but the company expects to make “significant” further progress in its current trading year.
FirstGroup has about 750 million shares in circulation. The stock was down by more than 11% to 114.2p by today’s market close.
I Squared – operating from offices in London, Hong Kong, Singapore, New Delhi and Miami – had made previous approaches for the bus and rail firm, with FirstGroup twice asking for an extension to the “put up or shut up” deadline.
FirstGroup announced last year it had completed the sale of North American businesses First Student and First Transit. They were acquired by Swedish private equity group EQT Infrastructure in a deal worth £3.3bn.
Last October, FirstGroup said it had sold Greyhound – the iconic coach business connecting cities across North America – drawing its ownership to a close after 14 years. The £125 million sale to Germany’s FlixMobility more than two years after the division was put up for sale ended FirstGroup’s interests across the Atlantic, leaving it to focus on its UK bus and train operations
FirstGroup is the second-largest regional bus operator and biggest rail firm in the UK.
The company employs about 30,000 people and carries around 1.5m passengers across its networks every day.
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